Uruguay’s Economy Slowed More Than Forecast on Shut Refinery

March 22 (Bloomberg) -- Uruguay’s economic growth slowed
more than analysts forecast in the fourth quarter as a
refinery closure and the start of a drought trimmed a nine-year
expansion in the South American country.

Uruguay’s gross domestic product expanded 3.5 percent in
the fourth quarter from a year earlier, the central bank said on
its website today. Analysts forecast the economy would grow 6.5
percent, according to the median estimate of six economists in a
Bloomberg survey. GDP expanded 5.7 percent in 2011, down from a
revised estimate of 8.9 percent in 2010.

The closing of Uruguay’s La Teja refinery for maintenance
and a subsequent workers strike slowed growth from August until
the facility re-started in January. A drought that started at
the end of the year and rising import barriers in neighboring
Argentina are hitting the $44 billion economy more than
expected, said Pablo Moya, an economist at Montevideo-based
Oikos Research Co.

“There was a stronger slowdown than forecast,” said Moya,
who had forecast annual growth of 6.3 percent. “We will
downgrade our growth forecast for 2012 to 4 percent or 4.5
percent from 4.7 percent.”

Industrial production, excluding the closed La Teja oil
refinery, rose 1.3 percent in January from a year earlier, the
national statistics agency reported March 13. With the refinery
included, December output fell 12.6 percent from a year earlier.

Stronger Peso

A strengthening currency that policy makers are counting on
to help fight inflation will also help slow growth this year,
Barclays Capital said in a March 8 report. Consumer prices rose
7.9 percent in February from a year earlier, above the central
bank’s 4 percent to 6 percent target range.

“The country’s main economic challenge continues to be
inflation, despite the authorities’ willingness to reduce it,”
the Barclays said.

The Uruguayan peso has gained 2 percent against the dollar
this year, compared with a 2.6 percent gain for the Brazilian
real and a 1.5 percent decline for the Argentine peso. A
stronger currency may damp growth enough to bring inflation
closer to target, Barclays said in its report.

Right Path

The economy “is on the desired path of deceleration,”
central bank President Mario Bergara told reporters March 1 in
the coastal town of Punta del Este. The economy may expand as
much as 4.5 percent this year, he added.

Unemployment rose to 5.7 percent in January from a record
low of 5.3 percent the previous month.

“Growth in 2012 will be fueled mostly by the dynamics of
the domestic market, based on an overheated labor market with
historically low unemployment rates and significant increases in
real wages,” said Ramon Pampin, an economist at
PricewaterhouseCoopers in Montevideo.

Policy makers will weigh the latest economic data at their
quarterly meeting March 29, when they will decide whether to
change the benchmark overnight lending rate. The rate was raised
75 basis points, or 0.75 percentage point, to 8.75 percent in
December.